Why SSC Is Turning Into the Outsourcing Driver

Category: Surveys

Shared Service Centers (SSC)

Shared Service Centers (SSC) began to appear in large corporations of Europe and the US twenty years ago to perform the functions of accounting and payroll, IT support, HR, vendor relations, and call center. The idea behind a SSC is to make the function implementation “one-stop” for the entire corporation, thus ensuring the unification of methods and approach, decrease in fiscal and other risks, and reduction in spending. The other SSC effects, such as an easier creation of knowledge bases, expert knowledge of the function, facilitation of the technical support processes, centralized control over staff growth and continuity, and employee adaptation and training, are no less important. Furthermore, SSC is a significant success component in expansion to new national markets. SSC are widely used today by such corporations as Shell, Hewlett-Packard, Coca-Cola, McDonald’s, Citigroup, and others.

As far as reducing spending by creating a SSC is concerned, this is not a sand-castle, but quite a real and proven thing. Migrating the purchasing and supply function to a SSC allows for volume savings. A well-known example of the Boeing air carrier, who transferred its help desk to SSC, shows colossal savings. The Standard Chartered Bank saved 8 million dollars by transferring the HR function to a Shared Center. Summary statistics show that the use of SSC in the course of three-five years lowers the cost of financial accounting by 20-40%. After NASA migrated HR and financial management, as well as vendor relations and IT services to SSC, its expenses went down by 5-10%; that is 15-20 million dollars a year.

Savings, however, is not the only thing that businesses gain by using SSC. Many companies acknowledge that SSC enables them to exercise more control over function implementation, as well as to create and implement new business processes faster; it enables them to be more flexible. The SONY Corporation explains its choice in favor of SSC by the need to preserve knowledge and know-how within the company.

Right now the global SSC market is growing at a good rate. According to the HR Service Delivery and Technology Survey Executive Summary Report, conducted by the Towers Watson among 630 companies of North America, Europe, Near East, and Asia, 44% of companies are planning to change their HR structure within the next two years. The need for change is due to future business restructuring, the need for spending efficiency, for achieving synergy, for improving the quality of the HR function, reducing expenses, and supporting entry into the global market. Almost 40% of companies see SSC as the tool for reaching their goals. Around one third of the respondents will migrate more of their HR functions to the existing SSC, while 26% will outsource a part of their HR. It is significant that none of the companies that use SSC plan to give it up.

The use of SSC is logically accompanied by business processes outsourcing. Among “business whales” a so-called “hybrid” model is common, when a corporation has its own Shared Service Center and uses the services of external providers of BPO outsourcing worldwide. For example, the Daimler Auto Group transferred the finance function to its own SSC in Berlin, while transaction processing is done by an external provider in the Philippines.

As a rule, highly specialized functions that require special expertise and qualified staff are outsourced to external providers. That is why some of the most outsourced tasks include corporate pension plans, payroll, medical insurance, and relocation.

Smaller corporations and companies also use Shared Centers managed by external providers. When PepsiCo came out on the Indian market, for example, it began to actively use the outsourcing SSC model. The PepsiCo Financial Director Kim Narishman views this step as the right decision from the point of view of balancing labor costs and efficiency.

Russia also has Shared Service Centers that provide outsourcing services. For now, these SSC mainly focus on parent companies and in addition “do odd jobs” on the external market. Among them is the Information Technology Service Company (ITSC) established five years ago by SIBUR and Gazprom Oil, and the Regional Technical Center of TNK-BP, providing VoIP, Internet access and mobile communications services. A potential outsources is Sberbank-Technology, established a couple of years ago for IT systems development of the leading bank in the country.

A rare insourcing project that has completely broken away from its parent company is a system integrator and communications services and telecommunication equipment provider Sibintek. It was established in 1999 as a YUKOS Service Center and came out on the external market in 2008.

There are no examples of successful SSC that provide implementation of the HR function on the Russian market yet. There are, however, corporate universities that have been leading their own lives for a long time and that provide services on the market. For example, the Higher School of Management and Innovation (HSMI), created by Sistema JSFC and the Lomonosov Moscow State University, not only trains MTS employees but is also a source of manpower for many other high-tech companies.

Even in Russia, however, an interest in outsourcing HR functions may stimulate the growth of full-fledged SSC managed by providers with appropriate expertise. We, at the UCMS Group, also see the growing demand for outsourcing of accounting functions, and legal and auditing services. This leads us to believe that Russian companies will soon have the same opportunities for improving expenditure efficiency and business management as the ones abroad. It goes without saying that we will support and contribute to the growing use of SSC and BPO outsourcing, as well as to any other practice that helps our companies grow and be competitive.